Guarantor Loans

If you're thinking about searching for a loan, you might have wondered whether a guarantor loan could be an option for you to consider.

Our guide provides the answers to some frequently asked guarantor loan questions, including:

• What is a guarantor loan?
• Who can apply for a guarantor loan?
• How much money can you borrow with a guarantor loan?

Please note that Little Loans is a credit broker, working with a panel of trusted and responsible lenders. None of the lenders we work with offer guarantor loans. Instead, they provide short-term, personal, no guarantor loans from £100 to £10,000. Depending on the amount of money you apply to borrow, you could repay your loan across terms between 3 to 60 months.

What is a guarantor loan?

You know when you're going for that dream job? You know you can do it. You know you have the skills, the experience, and the qualifications to really make a success out of it.

But the business you want to work at won't give you a start date until they've heard back from a referee who agrees to provide you with a reference proving that you’re great at what you do. Someone who knows you, the hours you put in, the way you look after customers, and how you always provide a top-quality service?

The guarantor in a guarantor loan is a bit like a job referee. It's like a personal recommendation from someone who knows you well enough to say to a lender, "I know this person's credit score isn't the best, but they are good for the money".

And that belief in you goes even further. The guarantor is so confident that you'll be able to make all of the monthly payments in full and on time that, if you miss any, they'll honour each failed payment on your behalf. After all, no-one would sign up to be a guarantor if they thought the person, they're guaranteeing for was going to leave them with a big debt.

This is a form of finance that's become very popular in the UK in the last few years. People whose circumstances meant that they hadn’t been eligible for borrowing in the past can now often get the money they need sent into their bank account with the help of a friend or a family member.

Can you get a guarantor loan with bad credit?

Guarantor loans are financial products specifically aimed at servicing borrowers who have a poor credit rating.

Remember how, in years gone by, a bank would only give a mortgage to a first-time buyer if someone acted as a guarantor for the mortgage? Finance companies use exactly the same principle with a guarantor loan customer that banks and building societies used to use in the past.

The fact that a guarantor recommends you is important. What gives finance companies the confidence they need to make you an offer is knowing that if you can't repay the loan, then the guarantor will be paying them on your behalf instead.

As long as you only keep making the minimum monthly repayment, it could take you years (in some cases, more than a decade) to completely settle all of the outstanding balances on your credit card, store card, and overdraft debt.

Who can be a loan guarantor?

You can nominate almost anyone to be the guarantor in a loan agreement. Most people choose the option of having a friend or family member to be their guarantor.

However, someone with a poor credit history themselves is unlikely to be acceptable as your guarantor.

Loan guarantors generally:

• are in employment,
• have a good credit history status,
• own their own property,
• are based in the UK,
• have a UK bank account, and
• are 21 years of age or older.

Although there is likely to be a better chance of your guarantor being approved if they are a homeowner, it's not a pre-requisite to making a request for a loan. It all depends on the lender - for some, it's important that your nominated guarantor is a homeowner whereas, for others, it's not.

Are guarantor loans unsecured loans? Yes - a guarantor loan is an unsecured loan so you don't have to be a homeowner to apply for one.

My credit rating after I've got my guarantor loan...

If you keep up to date with all the monthly repayments during the term of your loan, there is a chance that your credit rating might improve as a result.

However, if you default on the loan or if you miss payments regularly, regardless of whether or not your guarantor covers your late payments, there could be a very adverse effect on your credit rating.

Are guarantor loans a good idea?

Guarantor loans may be a suitable idea to help you out of a tight spot financially only if you're sure that you can make all of the payments in full and on time without relying on your guarantor.

Responsible lenders and brokers will appear on the Financial Conduct Authority (FCA) register. For your peace of mind, you may wish to check that a company is listed on the register before you decide whether to make an application.

Do banks do guarantor loans?

Banks appear to have completely withdrawn from offering unsecured guarantor loans to customers.

Making repayments on a guarantor loan

When you take out your guarantor loan, you'll receive a schedule of repayments from the lender letting you know how much each repayment will be for and when the money will be collected from your bank account.

What is the application process for a guarantor loan?

When beginning your search for a guarantor loan, you can choose to apply with a direct lender or using a credit broker.

Every time you make a full application for a guarantor loan direct with a lender, a hard credit search will appear on your credit report.

This is important. One way many lenders decide whether they are going to approve your application or not is to look at how many times hard searches have been run on your credit file.

If there are too many hard searches in a short space of time, this often puts lenders off accepting your request for a loan because they may think that you're struggling financially.

When does a hard credit search happen? A hard credit search will take place:

• if you complete the lender's application form when you're at their site,
• after the person you've nominated as your guarantor has agreed to stand by you, and
• your guarantor has shared their personal and financial details with the lender.

Guarantor loans broker versus direct lender - credit rating impact

A credit broker works with a range of lenders and, using the information you provide on the application form, can scan their panel to search for a suitable loan for you. This is usually done using soft search technology, which won't impact your credit score in any way.

Please be aware that if you search for a loan through a credit broker and choose to make a full application with a lender you’ve been matched with, an affordability check will be carried out by that company. This could include a hard search or Open Banking. A hard search will remain on your credit file for up to 12 months and multiple hard searches within a short period of time could have a negative impact on your credit score.

Open Banking is a secure procedure carried out by an authorised third party, such as a lender. With your consent, the third party is able to access your recent financial history with a read-only view, through your online banking account. Only you can control who views your account, and you can withdraw your consent at any time.

Explaining how it works to you and your guarantor

If the lender is happy to proceed once they have all the information, they need from you and your guarantor, the lender will then explain to both of you the responsibilities you share for the debt and for making the repayments in full and on time.

You and your guarantor are effectively joint borrowers in the lender's eyes - the debt belongs to both of you even though your guarantor will not receive a penny into their bank account when the loan has been approved and agreed by both you and your guarantor.;

The lender will not approve the loan unless they are convinced that both of you understand that the guarantor will be responsible for making payment on your behalf if you're not able to.;

When the lender is happy

The lender will finalise their offer to you. They'll show you:

• a calendar with the dates on which you have to pay the loan back,
• monthly repayments (how much you'll pay back on those dates)
• the loan term agreed (how many months the loan lasts for)
• interest rates (the amount you'll be charged in interest for the loan including the APR - the rate will be fixed for the life of the loan)
• options you have to pay the loan back early
• the terms and conditions of the loan

If you decide at this point to become their newest customer and you choose to accept the loan after you've read the terms and conditions, a new lending agreement will exist between you and the finance company.;

Payment of the loan into the bank account you've registered with them will normally be quick - that will be the same account that your lender will collect your repayments from.

Please note that failure to meet repayments on your guarantor loan or defaulting on your loan is likely to have a significantly adverse impact on your credit score. In addition, your guarantor will be contractually obliged to make the repayments that you fail to make. If your guarantor is unable to make missed or overdue repayments on your behalf, there may also be a significantly adverse impact on their credit score.

You and your guarantor should read and understand the terms and conditions of any offer made to ensure that you understand the risks and responsibilities of entering into a loan agreement.;

Search for a loan with Little Loans

While we don't currently work with any lenders of guarantor loans, you can use Little Loans to search for a no guarantor loan up to £10,000 if you:

• Are over the age of 18;
• Are a UK resident;
• Have a UK bank account with a valid debit card; and
• Have a regular source of income paid into your bank account.